Creating A New Kind Of Savings Bank

Imagine entering a heavily regulated ultracompetitive industry as a start-up. That's what The Dutch-based
ING
Group decided to do in 1998. It founded
ING
Direct as a Robin Hood of the banking industry, a new kind of bank aiming to bring back saving to the average American. The idea was to have a bank without branches and pass the savings from reduced overhead on to the customer in the form of higher rates.
ING
Direct opened for business in 2000 and was an immediate success. By early 2001 it had passed the 100,000 customer mark, and just six months later it passed 200,000. Through unconventional but focused advertising and marketing outreach, the word spread so explosively that today
ING
Direct is America's largest savings bank, with more than $90 billion in assets. I talked to Arkadi Kuhlmann, its founder and chief executive officer, about how he introduced something truly new into the banking industry.

Forbes: What is
ING
Direct's model, and how is it different from that of other banks?

Kuhlmann: There are 9,600 banks in this country. When we started, we thought, there's no point making another bank exactly like all the others, so let's do what's great in America, let's innovate. Let's innovate around marketing and technology and productivity.

We wanted an important and clear idea, and that was the idea of leading Americans back to savings. We saw that there was too much spending going on. Credit cards had become the opium of consumerism. Let's encourage Americans to save, we decided, and that has been our mission.

Our model was to grow organically with a high-volume, low-margin business. We wouldn't target the 30 million rich people in America; we would target the 270 million who are the backbone and who we thought needed a better value proposition--that is, more affordable savings. We could offer significantly higher rates if we removed costs from our model. Branches are usually a huge cost, up to 50% of a bank's expenses, so we didn't have branches and could pass on the savings to our customers. All our services are provided over the telephone and the Internet. We have also opened up several ING Cafes, to underscore the idea that opening an account should be as easy as buying a cup of coffee.

We have no minimums. You want to open an account for your grandchild for a dollar, you can do it. We have no fees. But we do have a maximum. You can't put more than a million dollars into this account. Why? If you have a million dollars, you need private banking. You need a whole bunch of other services that a high-volume, low-margin player isn't going to deliver to you. We are here for the everyday American.

How did you develop this model?

If you look within the banking industry, you'll end up doing what everybody else does. So we looked at other industries, airlines, hotels, retailers, electronics--models like
Dell
, for example.

We set out to be a high-volume, low-margin pure retail play, which meant we had to cut out fees. We would need a productivity advantage, just like retailers have. So we looked at grocery retailers who do a high-volume, low-margin business. They have to have a service-differentiated edge, clearly focused on who their customers are. We set out to take those ideas and create a new type of banking model.

As CEO, what are your most important roles?

CEOs need to be clear about how they express the vision and then the mission. Vision is aspirational, and mission is how you hold yourself accountable. Our vision is to lead Americans back to saving. Our mission is to simplify financial products.

How do you as CEO view social media?

Many of our customers are on Facebook, LinkedIn and Twitter. In electronic networking, people talk about everything. We do want people to talk about us. Forty-three percent of our customers come by word of mouth. So whatever you say in an ad, you'd better deliver, and what you say in social media had better be true. If you are like me, you want to ride a
Harley-Davidson
, you want to carry a nine-millimeter gun, it had better be real. It cannot be for show. So either you're authentic about this or you're not, and people see through it.

But the other problem is you can't control social media. You can't go out and shape the public conversation. People are going to say what they want, negative and positive. And that irritates a lot of businesspeople. It certainly irritates CEOs, because they still believe they're in control of their brands and how their conversation in the public is shaped. Social media force you to let go of your brand and return it to where it belongs--with the customers.

Is the customer always right?

In most places, every customer is right. But in a highly automated productivity kind of business, we create value for the customer by simplifying everything and having just one highly successful model. It's like when Ford started and you could have any Ford you wanted as long as it was black. With ING, you can have any high-rate savings account you want as long as it's orange. It's simple because it's done in a uniform way, and everyone, regardless of account size, gets the same service. We can do that through high volume. We can pass those savings on to our customers.

As an example, we will not give you a mortgage unless you have a good down payment. I will not give you a mortgage for 100% loan-to-value. That's not our program. Now, Uncle Sam will do that, and he is competing with me, but I'm appealing to Americans who basically say that just because you can do it doesn't mean you should.

I have seven and a half million customers, and I am willing to stand up to every one of them and ask, have I given you a good deal? Have I tricked you? Have I surprised you? Have I disappointed you in any way?

What is your philosophy about building a culture?

The fundamental premise about culture is that you are either in a job or on a mission. Many of us have a simple contract. You put in time, you apply skills, you do certain tasks, you get the result, and you get paid for it. But that isn't really enough for most of us.

Most of us want to know that what we work on fulfills something we want to accomplish. It can be personal development. It can be doing good for society. It can be helping the environment. It can be creating something that improves the quality of life of people around us.

Culture gets created by itself. If you don't do anything, it gets created in a vacuum. Things just seep in, and a culture gets created on its own. Or you can direct it in a certain way. We said, well, let's direct it, and let's make sure it's consistent and aligned. I believe you need to direct the culture--and let the culture direct the business.

It sounds like this is more than just business to you.

In America our core characteristic is optimism, but underneath that Americans have a strong belief in independence and freedom. Our country has grown because we rely on ourselves. Our grandparents, yours and mine, found their own resources. They didn't believe every answer was a line of credit on a credit card or the government helping them out. The self-reliance of Americans is what founded this country, and we somehow have forgotten that.

I want people to say, those guys at ING Direct, they helped bring that self-reliance back. That's what we want to leave behind. It's not about just making money. Money is the oil in the economic machine, not the machine. And it all starts with the mentality of bringing America back to saving.

Robert Reiss is host of "The CEO Show," which is nationally syndicated by Business TalkRadio Network. This article was adapted from an interview that aired on "The CEO Show." To hear podcasts of it and other CEO interviews, click here.

I believe the great CEOs understand both business success and personal success. My higher purpose is to disseminate CEO wisdom to help elevate business, the economy and society. My platforms are: host of the nationally syndicated Am/Fm radio show The CEO Show with Robert Re...